Asean needs to find a balance between leveraging the opportunities presented by China and mitigating the risks of over-competition from it. — Bernama
THE world is in a constant state of flux. Geoeconomic fragmentation, driven by geopolitical tensions and power struggles among big countries, is reshaping the global economy according to geopolitical fault lines. This is impacting global relations, economic and financial stability.
The post-Cold War era period since 1991, which has been characterised by the rise of economic globalisation and free trade, emergence of new economic powers, and decline in traditional interstate conflict, has been replaced by geoeconomic globalisation.
The World Trade Organisation (WTO) was formed in 1995, and China formally joined the international body on Dec 11, 2001.
Geoeconomic globalisation refers to the increasing economic integration of countries across borders, while simultaneously exerting the growing influence of geopolitical factors on economic outcomes. It involves a free flow of goods, services, capital and people, leading to greater economic interdependence.
Geopolitical competition among the great power nations have prioritised their strategic national economic and security interests.
In each continent, geopolitical competition is reshaping the economic and business landscapes, and the raging tensions between great nations pose challenges to governments, businesses and investors as they navigate the world of complexity.
The conflicts between the world’s greatest powers are changing the playbook for competition between countries and regions. The powerful trends are shaping the world in the following manners:
> Challenges to global multilateralism whereby multilateral regimes are becoming regional rather than global. Free trade agreements and other regional trade arrangements are becoming more prevalent, further demonstrating the shift towards regionalism.
> Economic warfare is fuelling nationalistic sentiment and protectionist measures can hinder efforts towards economic integration across borders.
> A steady process of bifurcation of technologies – a division or separation of technology into distinct and largely independent ecosystems, often driven by geopolitical factors like trade tensions or national security concerns.
Tech rivalry
This is seen in the United States-China tech rivalry, where both countries are building their own independent semiconductor supply chains, leading to diverging technological paths. Artificial intelligence is on a two-horse race.
In the new geoeconomic world, a weakening or erosion of internationally agreed-upon principles, rules, and practices that govern international relations and behaviour has manifested in a decline in trust and non-compliance and the ensuing shift towards a multipolar and regionalised power dynamic.
The international institutions and organisations like the United Nations and WTO, which have been criticised for failing to deliver on their mandates, are facing a crisis of legitimacy and effectiveness as the ideal channel to address the world’s multitude of interconnected challenges such as peace and security, climate change, and trade conflicts.
The WTO, designed to safeguard the free flow of trade and investment, has lost credibility by appearing irrelevant.
In this state of affairs, the world’s powerful countries like the United States and China, which are embroiled in a fierce competition or the expansion of their global influence, will continue to unveil their distinctive visions to shape a new international order.
EU undecisive
The United States and China are able to shape own future while the European Union (EU) is seemingly undecisive and waver between inaction and emphatic discourse. The non-great powers or smaller states in South-East Asia are compelled to hedge between the United States and China as Asean wants to maximise security, prosperity and autonomy in what is called the “impossible trinity”.
For Asean, hedging is a pragmatic policy that maintains options and mitigates risks.
Asean has forged closer partnerships with different powers depending on their relative convergence of interests.
In response to Donald Trump’s “Liberation Day” sweeping tariffs, Asean has firmly rejected any form of tariffs imposed unilaterally, as they contradict the spirit of multilateralism and free trade championed by the region.
The US president’s sweeping tariffs have reset global trading relationships, crippled rule-based globalisation, undermined a free and fair-trade system besides introducing a new era of economic nationalism.
The embrace of nationalism and unilateralism has increased trade tensions, impacted global trade and international relations, weakened multilateral cooperation, and undermined the global economic order.
The United States’ allies or regions such the EU, Japan, and Canada found themselves at odds with the country, grappling with increased tariffs and uncertainty about their age-old relationships.
Neutral stance
Most South-East Asian countries have long maintained their neutral stance.
Amid this evolving landscape, Asean countries are carefully positioning themselves, balancing their economic ties between China and the United States and handling burgeoning protectionist tendencies in their own member nations.
Asean should manage its supply chain vulnerabilities, not only by fostering stronger trade relations among themselves but also pursuing trade and investment ties with China based on win-win cooperation, fair competition and market access.
This middle-ground approach, built on mutual trust and benefit, would foster sincere relationships as all parties find common ground and make concessions to reach mutually agreeable deals.
It is important to address the supply and demand challenges while balancing interests among Asean members and China.
The United States’ growing economic nationalism accelerates Asean’s diversification efforts, providing an alternative to deepen economic ties with China.
Since establishing a dialogue relationship more than three decades ago, China and Asean ties have been strengthened and elevated to a comprehensive strategic partnership.
The partnerships solidified in 2021 by respecting each country’s sovereignty and promoting a rule-based multilateral trading system.
China and Asean, as the world’s second and fifth-largest economies respectively, represent a quarter of the global population, and their firm commitment towards multilateral trading system and fostering win-win cooperation could offer stability to the global economy.
China and Asean have become each other’s largest trading partners, with rapid growth in trade and investment.
Significantly larger
Asean’s trade with China is significantly larger than its trade with the United States. In 2023, Asean’s trade with China reached US$606.9bil, more than the US$395.3bil between Asean and the United States.
China has been Asean’s largest trading partner since 2009.
In 2023, China has surpassed the United States and the EU to become Asean’s largest export market.
During the period 2019-2023, intra-Asean trade had expanded by 4.7% per annum to US$759.0bil in 2023 while extra-Asean trade expanded by 6.1% per year to US$2,766bil in 2023.
China can offer a crucial lifeline, a counterbalance to the looming trade war storm. The existing Asean-China Free Trade Area (Cafta) provides a framework for deepening economic cooperation.
Both Asean and China should continue to leverage on The Regional Comprehensive Economic Partnership or RCEP and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership or CPTPP (China to apply for accession) to boost regional trade and investment cooperation. China and Asean have substantially concluded upgrade negotiations concerning China-Cafta version 3.0.
This upgrade aims to address both traditional and emerging trade issues, particularly those concerning global supply chains and sustainability. The expected upgrading of the Asean Trade in Goods Agreement by end-2025 will help to reduce trade barriers and facilitate the flow of goods between member countries.
Additionally, countries in the global South should actively promote South-South cooperation and also with the advanced economies, diversify their trade partnerships and build an interconnected global trade network.
Diversifying trade relationships will reduce reliance on the US market and mitigate the impact of trade wars.
Initiatives like the BRICS plus business partners provide a platform for emerging economies to trade and cooperate in finance, shielding them from harmful economic policies like tariffs and quotas.
Additionally, BRICS+ partner countries have the potential to become a major geopolitical and geoeconomic force. The bloc boasts about 45% of the world’s population, generates more than 35% of its gross domestic product (as measured in purchasing power parity) and produces 30% of its oil.
China can further open its vast domestic market to exports from Asean members, particularly in areas like agriculture, manufacturing and services.
This can help offset potential reduced access to the US market.
Streamlining customs procedures and reducing non-tariff barriers for Asean goods entering China would further ease trade.
The annual China International Import Expo is an important window for China to demonstrate its commitments to trade and market openness and undertake pragmatic actions, can enhance a favourable environment for open cooperation.
Asean and China can explore new mutually beneficial cooperation frontiers and emerging fields such as digital economy, artificial intelligence, electric vehicles and clean energy.
While the relationship between Asean and China is generally positive and China’s growing economic influence can offer a lifeline to Asean nations during periods of trade tension, it also presents a potential risk of flooding their local markets with China goods, which could negatively impact local industries.
Asean needs to find a balance between leveraging the opportunities presented by China and mitigating the risks of over-competition from it.
In this new reality, Asean and China should strengthen and deepen strategic partnership and business alliances with other partner countries such as Japan, South Korea, and global South countries to sustain a rules-based multilateral trading system, resisting to the forces of nationalism, protectionism and unilateralism that undermine a fair and free trade.
Lee Heng Guie is the executive director of the Socio-Economic Research Centre. The views expressed here are the writer’s own.
